Even though some voices within the Labour party have been trying to woo the Occupy London protesters recently, the recent comments of Ed Balls on the "Robin Hood" or Tobin tax reminds us that his party isn't necessarily on the side of the 99%. The idea of taxing financial transactions at 0.05% – hardly a radical proposal – is to give national states some leverage against the power of international financial markets. Back in the 1990s, it was a demand taken up by the radical French group Attac, and was debated in the anti-capitalist movement. But it was opposed by leaders such as Gordon Brown on the grounds that it would restrain growth.

Things have moved on since then. Following the credit crunch, only the intervention of national states prevented the complete collapse of global capitalism. There is no doubt that doing so would have been easier had the Tobin tax already been in place. Thus, Brown declared his support for the tax in 2009, as did the chair of the Financial Services Authority, Lord Adair Turner. The United Nations approves the tax. And just this week, trying to save the moral high ground for the Church of England, Rowan Williams reiterated his endorsement. Recently, it is leaders of the European right such as Merkel and Sarkozy who have argued for a version of the tax to apply across Europe.

Yet, this is apparently too radical for Balls, the shadow chancellor, who timorously suggested this week that "we must be careful not to throw the baby out with the bathwater". While he supports the tax in principle, he has intervened in the debate over an EU-wide Tobin tax, arguing that "doing it only in Europe and not including major financial centres such as New York risks real damage to the City". In this, he is offering nuanced support to the government's position, which is to reject the tax unless it is implemented on a global level. This is a far cry from the "euthanasia of the rentiers" that Keynes prescribed.

Why does Labour find it so difficult to connect to the widespread hatred of bankers and finance? Because it is still committed to the same basic growth formula as they were before the crash. Back in 1997, when New Labour was still a saleable commodity, Gordon Brown touted "the new post-monetarist economics". This entailed, among other things, that the government had to keep the support of the financial markets in order to remain credible. That meant keeping taxes low, paying off debt, and reining in spending. Long-term investment in a truly global economy would accrue to those nation-states that "demonstrate stability in their monetary and fiscal policies". It also meant deregulating finance, the better to liberate its dynamism.

In this strategy, the competitiveness of British capitalism pivoted on the City of London. It is true that in the years that followed, the City was a magnet for foreign direct investment, though largely not long-term investment. By 2004, a third of all national growth came from finance and business services, which created 1.5 million jobs before the credit crunch, equivalent to the number lost in the stagnant manufacturing sector in the same period.

All of this activity in largely non-productive sectors of the economy gave the impression of dynamism, but it also compounded chronic sectoral imbalances in the British economy and contributed to Britain's unique vulnerability after the collapse of Lehman Brothers. It also punished voters in Labour's heartlands, not just in the north but in the capital itself. Even while the City boomed, the London-wide unemployment rate was consistently above the national average.

Yet this approach burrowed so deeply into the Labour party that even Ken Livingstone, a figure of the Labour left, spent his time as mayor cosying up to the City. In fact, he went as far as to attack Alistair Darling over a proposed tax on the wealth of "non-doms", on the grounds that it would drive investors out of the City.

The post-New Labour era has seen some breaches in an otherwise impregnable fortress of orthodoxy. Raising taxes on the top income band broke a cardinal rule of Brown's "post-monetarist" dogma, for example. But the broad lineaments of that strategy remain intact. For example, Balls remains committed to austerity, because that is what the City wants. He disputes only the timing of Tory cuts – "too far and too fast".

The protesters at St Paul's are raising much deeper questions than the Tobin tax, and they are not up for being co-opted. Yet the sentiment to which they give expression is undoubtedly shared widely among the constituencies that Labour would need to get to the ballot box to win an election, including millions of public sector workers who will be striking this month. Balls's paucity of imagination, his inability to offer a growth model that doesn't depend on the City, leaves Labour looking weak and irrelevant.

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